Lovesac CoLOVEEarnings & Financial Report
Nasdaq · Consumer Discretionary · Retail-Furniture Stores
The Lovesac Company is an American furniture retailer, specializing in a patented modular furniture system called Sactionals. Sactionals consist of two combinable pieces, “Seats” and “Sides,” as well as custom-fit covers and associated accessories. Lovesac also sells Sacs, a bag seat filled with a proprietary foam mixture.
What changed in Lovesac Co's 10-K — 2023 vs 2024
Top changes in Lovesac Co's 2024 10-K
264 paragraphs added · 241 removed · 169 edited across 7 sections
- Item 1A. Risk Factors+189 / −136 · 114 edited
- Item 1. Business+64 / −92 · 46 edited
- Item 5. Market for Registrant's Common Equity+5 / −3 · 3 edited
- Item 3. Legal Proceedings+1 / −4 · 1 edited
- Item 7. Management's Discussion & Analysis+2 / −3 · 2 edited
Item 1. Business
Business — how the company describes what it does
46 edited+18 added−46 removed23 unchanged
Item 1. Business
Business — how the company describes what it does
46 edited+18 added−46 removed23 unchanged
2023 filing
2024 filing
These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing related expense; public company expenses; and credit card transaction fees.
These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing related expense; public company expenses; customer financing fees; and credit card transaction fees.
The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. These operating leases expire at various dates through fiscal 2034. Showroom leases may include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception.
The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. These operating leases expire at various dates through fiscal 2035. Showroom leases may include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception.
We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, we include capitalized freight and warehousing costs in inventory related to the finished goods in inventory. 37 Table of Contents Operating Leases The Company determines if a long-term contractual obligation is a lease at inception.
We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, we include capitalized freight and warehousing costs in inventory related to the finished goods in inventory. Operating Leases The Company determines if a long-term contractual obligation is a lease at inception.
We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. Gross Profit Gross profit is equal to our net sales less cost of merchandise sold.
We review our inventory levels on an 35 Table of Contents ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. Gross Profit Gross profit is equal to our net sales less cost of merchandise sold.
However, total selling, general and administrative expenses generally will leverage during the periods of investments with the greatest leverage occurring within the fourth quarter. 32 Table of Contents Advertising and Marketing Expense Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives, that cover all of our business channels.
However, total selling, general and administrative expenses generally will leverage during the periods of investments with the greatest leverage occurring within the fourth quarter. Advertising and Marketing Expense Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives, that cover all of our business channels.
During fiscal 2022, we recorded impairment charges of $0.6 million associated with the assets of an underperforming retail location in selling, general and administrative expenses in our Statements of Operations. We did not recognize any impairment charges with showroom-level right of use assets during the fiscal year ended January 31, 2021.
In fiscal 2024 and 2023, we did not recognize any impairment charges associated with showroom-level right-of-use assets. During fiscal 2022, we recorded impairment charges of $0.6 million associated with the assets of an underperforming retail location in selling, general and administrative expenses in our Statements of Operations.
Fair value is estimated using various considerations, including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on a marketing spend forecast.
Fair value is estimated using various considerations, including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on forecasted media spend subject to media credits under the barter arrangement.
We believe that cash expected to be generated from operations, the availability under our revolving line of credit and our existing cash balances are sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.
We believe that cash expected to be generated from operations, the availability under our revolving line of credit and our existing cash balances are sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. Capital Expenditures Historically, we have invested significant capital expenditures in opening new showrooms and updating existing showrooms.
Other factors that could affect our results of operations in future periods include: Macro-Economic Factors and COVID-19 There are a number of macro-economic factors and uncertainties affecting the overall business environment and our business, including increased inflation, rising interest rates, housing market conditions, consumer debt, and the conflict in Ukraine.
Other factors that could affect our results of operations in future periods include: Macroeconomic Factors There are a number of macroeconomic factors and uncertainties affecting the overall business environment and our business, including increased inflation, rising interest rates, housing market conditions, consumer debt and available credit, global conflicts and uncertainties in the global financial markets.
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. All other terms of the credit agreement remain unchanged. For additional information regarding our line of credit with Wells Fargo, see Note 10.
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. All other terms of the credit agreement remain unchanged. For additional information regarding our line of credit with Wells Fargo Bank, see Note 8. Financing Arrangements in the Notes to the Financial Statements included in Part IV of this report.
The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. 41 Table of Contents The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term.
These factors may have a negative impact on markets in which we operate, including the potential for an economic recession, a continued downturn in the housing market, and a reduction in consumer discretionary spending. We believe that these macro-economic factors have contributed to the slowdown in demand that we have experienced in our business which may continue.
These factors may have a negative impact on markets in 34 Table of Contents which we operate, including the potential for an economic recession, a continued downturn in the housing market, and a reduction in consumer discretionary spending.
Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report. here have been no material changes to the significant accounting policies during fiscal 2023. Barter Arrangements The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits.
There have been no material changes to the significant accounting policies during fiscal 2024. Barter Arrangements The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits.
Quarterly Results Our business is seasonal and we have historically realized a higher portion of our net sales and net income in the fourth fiscal quarter due primarily to the holiday selling season. Working capital requirements are typically higher in the third fiscal quarter due to inventory built-up in advance of the holiday selling season.
Working capital requirements are typically higher in the third fiscal quarter due to inventory built-up in advance of the holiday selling season. Net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season.
In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, and other various other assumptions that we believe to be reasonable under the circumstances.
Those estimates are based on our historical operations, our future business plans and projected financial results, and other various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis.
There were no outstanding borrowings under our credit facility as of January 29, 2023 and January 30, 2022. We are required to pay a commitment fee of 0.30% based on the daily unused portion of the credit facility.
We are required to pay a commitment fee of 0.30% based on the daily unused portion of the credit facility.
Sales made at Company operated showrooms, including shop-in-shops and pop-up-shops, and via the web are recognized, typically at the point of transference of title when the goods are shipped. Comparable Showroom Sales Comparable showroom sales are calculated based on point of sale transactions from showrooms that were open at least fifty-two weeks as of the end of the reporting period.
Sales made at Company operated showrooms, including shop-in-shops and pop-up-shops, and via the web are recognized, typically at the point of transference of title when the goods are shipped.
Financing Arrangements in the Notes to the Financial Statements included in Part IV of this report. 36 Table of Contents Critical Accounting Policies and Estimates The management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with U.S. GAAP.
Critical Accounting Policies and Estimates The management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with U.S. GAAP. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and requires us to make significant estimates and assumptions.
Competition The retail industry is highly competitive and retailers compete based on a variety of factors, including design, quality, price and customer service. Levels of competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.
Levels of competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.
Liquidity and Capital Resources General Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of liquidity.
The change in provision is primarily driven by lower net income before taxes, partially offset by a decrease in the effective tax rate. Liquidity and Capital Resources General Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of liquidity.
For fiscal 2021, net cash used in financing activities was $1.7 million primarily due to taxes paid for net share settlement of equity awards.
Net cash used in financing activities was $3.7 million in fiscal 2024, an increase from $1.9 million in the prior year period, primarily resulting from an increase in taxes paid for the net settlement of equity awards.
We estimate fair value based on future discounted cash flow based on our historical operations of the showroom and estimates of future showroom profitability and economic conditions. These estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability. Actual future results may differ from those estimates.
These estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability. Actual future results may differ from those estimates. If required, an impairment loss is recorded for that portion of the assets' carrying value in excess of fair value.
The increase in selling, general and administrative expenses in fiscal 2023 was primarily related to an increase in employment costs, overhead, rent, and selling related expenses. Employment costs increased by $26.3 million driven by an increase in new hires and variable compensation.
Selling, general and administrative expenses Selling, general and administrative expenses increased $48.3 million, or 22.4% , in fiscal 2024 compared to the prior year period . The increase in selling, general and administrative expenses was primarily related to an increase in employment costs, overhead expenses, selling related expenses and rent.
Cash Flow Analysis A summary of operating, investing, and financing activities during the periods indicated are shown in the following table: in thousands Fiscal Year Ended January 29, 2023 January 30, 2022 January 31, 2021 Net Cash (Used in) Provided by Operating Activities $ (21,375) $ 34,018 $ 40,521 Net Cash Used in Investing Activities (25,549) (16,488) (9,052) Net Cash Used in Financing Activities (1,935) (3,479) (1,667) (Decrease) increase in cash and cash equivalents (48,859) 14,051 29,802 Cash and cash equivalents at end of period $ 43,533 $ 92,392 $ 78,341 Net Cash (Used in) Provided by Operating Activities Cash (used in) provided by operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation, amortization, loss on disposal of property and equipment, impairment of property and equipment, equity based compensation, non-cash operating lease cost and the effect of changes in working capital and other activities. 35 Table of Contents In fiscal 2023, net cash used in operating activities was $21.4 million and consisted of changes in operating assets and liabilities of $90.8 million, net income of $28.2 million, and non-cash items of $41.2 million.
Cash Flow Analysis The following table summarizes operating, investing, and financing activities for fiscal 2024, 2023, and 2022: in thousands 2024 2023 2022 Net cash provided by (used in) operating activities $ 76,441 $ (21,375) $ 32,648 Net cash used in investing activities (29,211) (25,549) (15,118) Net cash used in financing activities (3,727) (1,935) (3,479) Net change in cash and cash equivalents 43,503 (48,859) 14,051 Cash and cash equivalents at end of period $ 87,036 $ 43,533 $ 92,392 Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation, amortization, loss on disposal of property and equipment, impairment of property and equipment, equity based compensation, non-cash operating lease cost, and deferred income taxes, and the effect of changes in working capital and other activities.
Advertising and marketing expenses were 12.3% of net sales in fiscal 2023 and 13.1% in fiscal 2022. Depreciation and amortization expenses Depreciation and amortization expenses increased 37.4%, or $2.9 million to $10.8 million in fiscal 2023 compared to $7.9 million in fiscal 2022.
The increase in advertising and marketing costs relates to ongoing investments in marketing spends to support our net sales growth. Advertising and marketing expenses were 13.4% and 12.3% of net sales in fiscal 2024 and 2023, respectively. Depreciation and amortization expenses Depreciation and amortization expenses increased $1.8 million, or 16.2%, in fiscal 2024 compared to the prior year period.
If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term. Recent Accounting Pronouncements See Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included within this report for a discussion of recently issued and adopted accounting standards.
If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term. Recent Accounting Pronouncements See Note 1.
Our primary cash needs are for marketing and advertising, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and updating existing showrooms, as well as infrastructure and information technology. The most significant components of our working capital are cash and cash equivalents, merchandise inventory, prepaid expenses, accounts payable, accrued expenses, other current liabilities and customer deposits.
The most significant components of our working capital are cash and cash equivalents, merchandise inventory, prepaid expenses, accounts payable, accrued expenses, other current liabilities and customer deposits.
We evaluate our estimates and assumptions on an ongoing basis. We continue to monitor the effects of global macroeconomic and geopolitical uncertainty, including COVID-19 pandemic related factors and general market, political and economic conditions. All of our significant accounting policies are outlined in Note 1.
We continue to monitor the effects of global macroeconomic and geopolitical uncertainty,general market, political and economic conditions. 40 Table of Contents All of our significant accounting policies are outlined in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report.
Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be recovered. We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified.
Impairment of Long-Lived Assets Our long-lived assets consist of property and equipment and right-of-use assets from leases. Property and equipment includes leasehold improvements, and other tangible assets. Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be recovered.
The decrease in gross margin percentage of 180 basis points was primarily driven by an increase of 160 basis points in total freight including tariff expenses and warehousing costs and a decrease of 20 basis points in product margin.
The increase in gross margin percentage of 450 basis points was primarily driven by a decrease of approximately 550 basis points in total distribution and related tariff expenses, partially offset by a decrease of 100 basis points in product margin driven by higher promotional discounting.
Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and requires us to make significant estimates and assumptions. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions and conditions.
Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions and conditions. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates.
The increase in depreciation and amortization expense is principally related to capital investments for new and remodeled showrooms in fiscal 2023. 34 Table of Contents Interest expense Interest expense, net of interest earned on the Company's money market account was $0.1 million and $0.2 million in fiscal 2023 and fiscal 2022, respectively, principally related to the interest expense for unused line fees and amortization of deferred financing fees on the asset based loan.
The increase in depreciation and amortization expense is principally related to capital investments for new showrooms in fiscal 2024. Interest income (expense), net Interest income was $1.7 million in fiscal 2024 compared to interest expense of $0.1 million in fiscal 2023.
Repeat customers Repeat customers accounted for approximately 45.6% of all transactions in fiscal 2023 compared to 41.6% in fiscal 2022. We expect a healthy mix between new transactions and repeat customers in our transaction mix as we spend on acquisition.
We expect a healthy mix between new and repeat customers in our transaction mix as we spend on acquiring new customers.
Some leases also include early termination options, which can be exercised under specific conditions. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Some leases also include early termination options, which can be exercised under specific conditions.
When evaluating long-lived assets for potential impairment, we will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset. If the estimated future cash flows are less than the carrying amounts of the assets, an impairment loss is measured as the excess of the carrying value over its fair value.
We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset.
This increase was driven by higher barter inventory transactions, operating 22 Best Buy shop-in-shops, and the addition of 113 new Costco in store pop-up-shops in fiscal 2023, partially offset by lower productivity in our online pop-up-shops on Costco.com in fiscal 2023. We expect to continue hosting both online pop-ups on Costco.com and Costco in store pop-up-shops.
This decrease was principally due to the timing of inventory barter transactions coupled with lower productivity of our temporary online pop-up-shops on Costco.com, partially offset by an increase of 311 Costco in store pop-up-shops compared to the prior year period. We also opened 22 additional Best Buy shop-in-shop locations compared to the prior year period.
Rent increased by $9.8 million related to $6.8 million rent expense primarily related to our net addition of 44 showrooms and 5 kiosks and $3.0 million in higher percentage rent from the increase in net sales.
Selling related expenses increased $6.0 million principally due to credit card fees related to the increase in net sales and an increase in credit card rates. Rent increased by $2.4 million related to a $6.1 million increase in rent expense from our net addition of 35 showrooms partially offset by a $3.7 million reduction in percentage rent.
Seasonality Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods. Net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season.
We believe that these macroeconomic factors have contributed to the slowdown in demand that we have experienced in our business which may continue in future periods. Seasonality in Quarterly Results Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods.
Net Cash Used in Investing Activities Investing activities consist primarily of investments related to capital expenditures for new showroom openings, the remodeling of existing showrooms, and the acquisition of intangible assets.
Net cash provided by operating activities was $76.4 million in fiscal 2024, an increase from net cash used in operating activities of $21.4 million in the prior year period, primarily driven by changes in working capital related to inventory management actions, timing of payments to vendors, and a decrease in income tax payments. 39 Table of Contents Net cash used in investing activities Investing activities consist primarily of investments related to capital expenditures for new showroom openings, the remodeling of existing showrooms, and the acquisition of intangible assets.
The increase in total freight including tariffs and warehousing costs over the prior year period is related to 90 basis points deleverage in warehousing and outbound freight costs and the increase of 70 basis points in inbound container freight costs.
The decrease in total distribution and related tariff expenses over prior year is principally related to the positive impact of 670 basis points decrease in inbound transportation costs partially offset by 120 basis points in higher outbound transportation and warehousing costs.
New Customer We define a customer as new when the customer has completed a transaction at Lovesac either at a showroom or internet channel only for the first time or if an existing customer completes another purchase at least 2 years since their last purchase.
In fiscal year 2024, we updated how we calculate comparable sales to better reflect our business, store growth and omni-channel sales approach. New Customer We define a customer as new when the customer has completed a transaction at Lovesac either at a showroom or internet channel only for the first time.
Gross profit Gross profit increased $72.5 million, or 26.5%, to $345.8 million in fiscal 2023 from $273.3 million in fiscal 2022. Gross margin decreased to 53.1% of net sales in fiscal 2023 from 54.9% of net sales in fiscal 2022.
Gross profit Gross profit increased $57.3 million, or 16.7% , in fiscal 2024 compared to the prior year period . Gross margin increased to 57.3% of net sales in fiscal 2024 from 52.8% of net sales in the prior year period.
Capital expenditures were $25.5 million, $16.5 million and $9.1 million for fiscal years 2023, 2022, and 2021, respectively, as a result of investments in new and remodeled showrooms and the acquisition of intangible assets. Net Cash Used in Financing Activities Financing activities consist primarily of taxes paid for the net settlement of equity awards.
Net cash used in investing activities was $29.2 million in fiscal 2024, an increase from $25.5 million in the prior year period, primarily resulting from increased capital expenditures related to new showrooms. Net cash used in financing activities Financing activities consists of taxes paid for the net settlement of equity awards and payment of deferred financing costs.
The Company recognized $21.3 million and $3.5 million for media credits and did not recognize any impairment for the years ended January 29, 2023, and January 30, 2022, respectively. Impairment of Long-Lived Assets Our long-lived assets consist of property and equipment and right-of-use assets from leases. Property and equipment includes leasehold improvements, and other tangible assets.
For fiscal 2024, 2023, and 2022, the Company recognized $12.3 million, $21.3 million, and $3.5 million, respectively, of barter sales in exchange for media credits. The Company had $32.8 million and $25.2 million of unused media credits as of February 4, 2024, and January 29, 2023, respectively, and did not recognize any impairment.
The increase in overall net sales was driven by our Showroom sales, Internet sales and Other sales. New customers increased by 9.9% in fiscal 2023 as compared to 14.5% in fiscal 2022 driven by the successful campaigns throughout the year.
The increase in overall net sales was driven by new showroom openings, partially offset by a decrease of 4.1% in omni-channel comparable net sales. New customers increased by 13.3% in fiscal 2024 as compared to 6.5% in the prior year period. Showroom net sales increased $39.2 million, or 9.8% in fiscal 2024 compared to the prior year period.
Other sales, which include pop- up-shop sales, barter inventory transactions and shop-in-shop sales, increased $27.9 million, or 57.4%, to $76.5 million in fiscal 2023 as compared to $48.6 million in fiscal 2022.
Internet sales (sales made directly to customers through our ecommerce channel) increased $23.3 million, or 13.2% , in fiscal 2024 compared to the prior year period driven by strong promotional campaigns. Other sales, which include pop- up-shop sales, shop-in-shop sales and barter inventory transactions, decreased $13.4 million , or 17.5% in fiscal 2024 compared to the prior year period.
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Although the impact of the COVID-19 pandemic has generally improved, there are 30 Table of Contents uncertainties around the scope and severity of the pandemic and its variants, its impact on the global economy, including supply chains and labor in the countries in which we manufacture and source materials, and other business disruptions that may impact our operating results and financial condition.
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As such, results of a period shorter than a full year may not be indicative of results expected for the entire year. Competition The retail industry is highly competitive and retailers compete based on a variety of factors, including design, quality, price and customer service.
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These sales will differ from net sales on our income statement which are reported when goods are shipped and title has transferred to the customer. A showroom is not considered a part of the comparable showroom sales base if the square footage of the showroom changed or if the showroom was relocated.
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Omni-channel Comparable Net Sales Omni-channel comparable net sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior-period of equivalent length.
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If a showroom was closed for any period of time during the measurement period, that showroom is excluded from comparable showroom sales. For fiscal years 2023 and 2022, 51 and 29 showrooms respectively, were excluded from comparable showroom sales.
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Comparable net sales includes sales at all retail locations and online, open greater than 12 months (including remodels and relocations) and excludes closed stores. Comparable net sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
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Comparable show room sales allow us to evaluate how our showroom base is performing by measuring the change in period-over-period point of sale transactions in showrooms that have been open for twelve months or more.
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In fiscal 2024, we updated how we calculate new and repeat customers to better reflect business across all of our channels as well as the purchase cycle of the categories in which we compete. Repeat customers accounted for approximately 43.6% of all transactions in fiscal 2024 compared to 41.3% in fiscal 2023.
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While we review comparable showroom sales as one measure of our performance, this measure is less relevant to us than it may be to other retailers due to our fully integrated, omni-channel, go-to-market strategy.
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Basis of Presentation and Results of Operations The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the financial statements and related notes included in this report. The discussion in this Form 10-K generally focuses on fiscal 2024 compared to fiscal 2023.
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As a result, measures that analyze a single channel are less indicative of the performance of our business than they might be for other companies that operate their distribution channels as separate businesses. Further, certain of our competitors and other retailers calculate comparable showroom sales (or similar measures) differently than we do.
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Our fiscal 2024 results contain an additional, non-comparable 53rd week when compared to fiscal 2023. A discussion of our results of operations and changes in financial condition for fiscal 2023 compared to fiscal 2022 has been excluded from this report, but can be found in Part II, Item 7.
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As a result, the reporting of our comparable showroom sales may not be comparable to sales data made available by other companies.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2023 Annual Report on Form 10-K, as amended by Amendment No. 1 and Amendment No. 2 on Form 10-K/A filed on November 2, 2023 and November 30, 2023, respectively. 36 Table of Contents Results of Operations The following table summarizes key components of our results of operations for fiscal 2024, 2023, and 2022: 2024 2023 2022 2024 2023 2022 (In thousands) (Percentage of net sales) Net sales Showrooms $ 437,394 $ 398,184 $ 298,989 62.5 % 61.2 % 60.0 % Internet 199,778 176,519 150,622 28.5 % 27.1 % 30.2 % Other 63,093 76,476 48,628 9.0 % 11.7 % 9.8 % Total net sales 700,265 651,179 498,239 100.0 % 100.0 % 100.0 % Cost of merchandise sold 299,222 307,528 224,707 42.7 % 47.2 % 45.1 % Gross profit 401,043 343,651 273,532 57.3 % 52.8 % 54.9 % Operating expenses: Selling, general and administration expenses 264,314 215,979 160,017 37.7 % 33.2 % 32.1 % Advertising and marketing 94,050 79,864 65,078 13.4 % 12.3 % 13.1 % Depreciation and amortization 12,603 10,842 7,859 1.8 % 1.7 % 1.6 % Total operating expenses 370,967 306,685 232,954 52.9 % 47.2 % 46.8 % Operating income 30,076 36,966 40,578 4.4 % 5.6 % 8.1 % Interest income (expense), net 1,747 (117) (179) 0.2 % — % — % Net income before taxes 31,823 36,849 40,399 4.6 % 5.6 % 8.1 % (Provision for) benefit from income taxes (7,962) (10,361) 7,089 (1.1) % (1.6) % 1.4 % Net income $ 23,861 $ 26,488 $ 47,488 3.5 % 4.0 % 9.5 % Other Operational Data Our recent showroom growth is summarized in the following table: Showroom Count: February 4, 2024 January 29, 2023 Showrooms open at beginning of period 195 146 Showrooms opened 46 52 Showrooms closed (11) (3) Showrooms open at end of period (1) 230 195 Showroom remodels — 4 (1) Showrooms open at the end of the period include 6 kiosks and 2 mobile concierges as of fiscal 2024, and 13 kiosks and 2 mobile concierges as of fiscal 2023. 37 Table of Contents Fiscal 2024 Compared to Fiscal 2023 Net sales Net sales increased $49.1 million , or 7.5%, in fiscal 2024 compared to the prior year period .
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Customer Lifetime Value and Customer Acquisition Cost We calculate CAC on an annual basis by dividing our expenses associated with acquiring new customers for a fiscal year by the number of new customers we acquire in that fiscal year.
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Employment costs increased by $21.3 million driven by an increase in new hires.
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We include premium rent for locations above commercial rates, media costs to new customers, and a portion of showroom merchandising costs in our marketing expenses associated with acquiring new customers when calculating our CAC. We refined our definition of premium rent to includes locations in Malls, Lifestyle centers and urban areas.
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Overhead expenses increased $18.6 million mainly consisting of an increase of $13.2 million in investments in the business to support current and future growth and $11.7 million in professional fees primarily related to the restatement of previously issued financial statements, partially offset by a $6.3 million decrease in equity-based compensation.
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Our marketing expenses as a percentage of net sales for fiscal 2023 were 12.3%, and 13.1% of net sales in both fiscal 2022 and fiscal 2021 . For fiscal 2023, our CAC was $628.16 per customer compared to a CAC of $542.02 for fiscal 2022.
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Selling, general and administrative expenses were 37.7% of net sales in fiscal 2024, an increase of 450 basis points as compared to 33.2% of net sales in the prior year period. Advertising and marketing expenses Advertising and marketing expenses increased $14.2 million, or 17.8% , in fiscal 2024 compared to the prior year period.
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This increase was a result of our increased marketing spend that targeted 31 Table of Contents Sactional customers. We expect our CAC to continue to increase over the next few years as a result of our continued focus on increasing marketing efforts. We expect this increase in CAC to correspond with a continued increase in CLV.
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Interest income earned on the Company’s cash and cash equivalents balances was favorable from higher interest rates compared to the prior year period. 38 Table of Contents Provision for income taxes Income tax expense was $8.0 million in fiscal 2024 compared to $10.4 million in fiscal 2023.
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We monitor repeat customer transactions in aggregate through our point of sale platform and in groups based upon the year in which customers first made a purchase from us, which we refer to as cohorts, as a way to measure our customer’s engagement with our products over their lifetime.
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At February 4, 2024, we had $87.0 million in cash and cash equivalents. Our primary cash needs are for marketing and advertising, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and updating existing showrooms, as well as infrastructure and information technology.
Removed
Our fiscal 2023 cohorts CLV is $3,224 compared to $2,853 in fiscal 2022. In addition, our fiscal 2015 cohort has increased its CLV from $1,071 in fiscal 2015 to $1,426 in fiscal 2023, a 33.1% increase in customer value since the fiscal 2015 cohorts’ first purchases with Lovesac.
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These capital expenditures have increased in the past and may continue to increase in future periods as we open additional showrooms. Capital expenditures are anticipated to support our showroom growth, including capital outlays for leasehold improvements, fixtures and equipment, and the construction of new showrooms.
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Retail Sales Per Selling Square Foot Retail sales per selling square foot is calculated by dividing the total point of sales transactions for all comparable showrooms, by the average selling square footage for the period. Selling square footage is retail space at our showrooms used to sell our products.
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Capital expenditures during fiscal 2025 are projected to be in the range of $22.0 million to $30.0 million. Capital expenditures were $29.2 million in fiscal 2024. Leases The majority of our operating leases relate to company showrooms. We also lease our corporate facilities.
Removed
Selling square footage excludes backrooms at showrooms used for storage, office space or similar matters.
Added
At February 4, 2024, we had aggregate lease obligations of $214.5 million, with $17.6 million payable within 12 months. See Note 6, “Leases” of the Notes to Financial Statements for further discussion of our operating leases.
Removed
Basis of Presentation and Results of Operations The following discussion contains references to fiscal years 2023, 2022 and 2021 which represent our fiscal years ended January 29, 2023, January 30, 2022 and January 31, 2021 respectively. Our fiscal year ends on the Sunday closest to February 1. Fiscal 2023, 2022 and 2021 were all 52-week periods.
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As of February 4, 2024 and January 29, 2023, the Company’s borrowing availability under the line of credit was $36.0 million, and there were no outstanding borrowings under our credit facility.
Removed
All dollar and percentage comparisons made herein refer to the year ended January 29, 2023, compared with the year ended January 30, 2022, unless otherwise noted.
Added
If the estimated future cash flows are less than the carrying amounts of the assets, an impairment loss is measured as the excess of the carrying value over its fair value. We estimate fair value based on future discounted cash flow based on our historical operations of the showroom and estimates of future showroom profitability and economic conditions.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
114 edited+75 added−22 removed175 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
114 edited+75 added−22 removed175 unchanged
2023 filing
2024 filing
While our focus is to continue the expansion of our showrooms, this may result in the closure of underperforming showroom locations or locations with declining profitability in order to pursue more productive opportunities that are in line with our real estate strategy.
While our focus is to continue the expansion of our showrooms, this may result in the closure of underperforming showroom locations or locations with declining profitability in order to pursue more productive opportunities that are in line with our real estate strategy.
Our goal is to offer our customers seamless access to our products across our channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs.
Our goal is to offer our customers seamless access to our products across our channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs.
A significant portion of our customers' brand experience also depends on third parties outside our control, including suppliers, assembly and installation service providers and logistics providers such as FedEx, UPS and other third-party delivery agents. If these third parties do not meet our or our customers' expectations, our brands may suffer irreparable damage.
A significant portion of our customers' brand experience also depends on third parties outside our control, including manufacturers, suppliers, assembly and installation service providers and logistics providers such as FedEx, UPS and other third-party delivery agents. If these third parties do not meet our or our customers' expectations, our brands may suffer irreparable damage.
Any such system, site or service interruptions could prevent us from efficiently receiving or fulfilling orders, which may reduce the volume or quality of goods or services we sell and may cause customer dissatisfaction and harm our reputation and brand Climate change or measures to address climate change can negatively affect our business or damage our reputation .
Any such system, site or service interruptions could prevent us from efficiently receiving or fulfilling orders, which may reduce the volume or quality of goods we sell and may cause customer dissatisfaction and harm our reputation and brand. Climate change or measures to address climate change can negatively affect our business or damage our reputation .
However, there can be no assurance that our reserve for warranty claims will be adequate or additional warranty reserves required due to failures in the technology in our StealthTech components or reduced warranty reserves may be required .
However, there can be no assurance that our reserve for warranty claims will be adequate or additional warranty reserves will not be required due to failures in the technology in our StealthTech components or reduced warranty reserves may be required.
The market price for our common stock may be influenced by many factors, including: • actual or anticipated fluctuations in our customer growth, sales, or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments; • lawsuits threatened or filed against us; • developments in new legislation or rulings by judicial or regulatory bodies; • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events; and • the societal and economic impact of macroeconomic factors, public health crises and the conflict in Ukraine.
The market price for our common stock may be influenced by many factors, including: • actual or anticipated fluctuations in our customer growth, sales, or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments; • lawsuits threatened or filed against us; • developments in new legislation or rulings by judicial or regulatory bodies; • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events; and • the societal and economic impact of macroeconomic factors, public health crises and international conflicts.
While we interact with many of our customers through our showrooms, our customers are increasingly using computers, tablets and smartphones to make purchases online and to help them make purchasing decisions when in our showrooms.
Additionally, while we interact with many of our customers through our showrooms, our customers are increasingly using computers, tablets and smartphones to make purchases online and to help them make purchasing decisions when in our showrooms.
We rely on third-party shipping companies to deliver our products to us; as a result, we are subject to various risks that are beyond our control, including labor disputes, union organizing activity, the 14 Table of Contents closure of such shipping companies’ offices or a reduction in operational capacity due to an economic slowdown or the inability to sufficiently ramp up operational capacity during an economic recovery or upturn, outbreaks of diseases (such as the COVID-19 pandemic), increased fuel costs and costs associated with any regulations to address climate change, and other factors affecting the shipping industry’s capacity or ability to deliver our products to us.
We rely on third-party shipping companies to deliver our products to us; as a result, we are subject to various risks that are beyond our control, including labor disputes, union organizing activity, the closure of such shipping companies’ offices or a reduction in operational capacity due to an economic slowdown or the inability to sufficiently ramp up operational capacity during an economic recovery or upturn, outbreaks of diseases (such as the COVID-19 pandemic), increased fuel costs and costs associated with any regulations to address climate change, and other factors affecting the shipping industry’s capacity or ability to deliver our products to us.
In addition, the results of operations of our showroom locations have and are expected to continue to fluctuated based on, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in our product assortment, the success of marketing programs, weather conditions and public health crises.
In addition, the results of operations of our showroom locations have and are expected to continue to fluctuate based on, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in our product assortment, the success of marketing programs, weather conditions and public health crises.
Our omni-channel operations create additional complexities in our ability to manage inventory levels, as well as certain operational issues, including timely shipping and returns.
However, our omni-channel operations create additional complexities in our ability to manage inventory levels, as well as certain operational issues, including timely shipping and returns.
We expect raw material prices to remain at historically high levels in many categories during fiscal 2023 due to price inflation in certain raw materials and global supply chain complexities. Macroeconomic factors, such as inflation, will continue to introduce uncertainty into many markets, especially with respect to freight and labor availability.
We expect raw material prices to remain at historically high levels in many categories during fiscal 2025 due to price inflation in certain raw materials and global supply chain complexities. Macroeconomic factors, such as inflation, will continue to introduce uncertainty into many markets, especially with respect to freight and labor availability.
If a disruption occurs in the operation of ports through which our products are imported, for instance, as a result of port congestion, adverse weather, natural disasters or climate change, we may incur increased costs related to air freight or use of alternative ports.
If a disruption occurs in the operation of ports through which our products are imported, for instance, as a result of port congestion, adverse weather, terrorist attack, natural disasters or climate change, we may incur increased costs related to air freight or use of alternative ports.
Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, we may lose current or future investors who may elect to invest with our competitors instead. In addition, we have and will continue to communicate our ESG goals and priorities.
Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, we may lose current or future investors who may elect to invest with our competitors instead. In addition, we have and intend to continue to communicate our ESG goals and priorities.
If we do not achieve these goals and priorities, or fail to meet the expectations of investors and other key stakeholders, our reputation and financial results could be materially and adversely affected. 24 Table of Contents In addition, there is also uncertainty regarding potential laws, regulations and policies related to ESG and global environmental sustainability matters, including disclosure obligations and reporting on such matters.
If we do not achieve these goals and priorities, or fail to meet the expectations of investors and other key stakeholders, our reputation and financial results could be materially and adversely affected. In addition, there is also uncertainty regarding potential laws, regulations and policies related to ESG and global environmental sustainability matters, including disclosure obligations and reporting on such matters.
The growth of our business may require significant additional resources to meet these daily requirements, 8 Table of Contents which may not scale in a cost-effective manner or may negatively affect the quality of our sites and customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties across the world.
The growth of our business may require significant additional resources to meet these daily requirements, which may not scale in a cost-effective manner or may negatively affect the quality of our sites and customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties across the world.
In addition, new showroom openings may negatively impact our financial results due to the effect of opening costs and lower sales during the initial period following opening. New showrooms, particularly those in new markets, build their brand recognition and customer base over time and, as a result, may have lower margins and incur higher operating expenses.
In addition, new showroom openings may negatively impact our financial results due to the effect of opening costs and lower sales during the initial period following opening. New showrooms, particularly those in new markets, build their 18 Table of Contents brand recognition and customer base over time and, as a result, may have lower margins and incur higher operating expenses.
Increasing regulations and expectations on environmental, social and governance factors may impose additional costs and expose us to new risks. Many investors, customers and other key stakeholders have increased their focus on environmental, social and governance (“ESG”) factors and corporate responsibility.
Increasing regulations and expectations on environmental, social and governance factors may impose additional costs and expose us to new risks. Many investors, customers and other key stakeholders have increased their focus on ESG factors and corporate responsibility.
Moreover, if we do not successfully optimize our omni-channel operations, or if they do not achieve their intended objectives, it could have a material adverse effect on our business, financial condition, operating results and prospects. Purchasers of furniture may choose not to shop online, which could affect the growth of our business.
Moreover, if we do not successfully optimize our omni-channel operations, or if they do not achieve their intended objectives, it could have a material adverse effect on our business, financial condition, operating results and prospects. 19 Table of Contents Purchasers of furniture may choose not to shop online, which could affect the growth of our business.
Our reliance on suppliers in developing countries increases our risk with respect to infrastructure available to support manufacturing, labor and employee relations, political and economic stability, corruption, and regulatory, environmental, health and safety compliance.
Our reliance on suppliers in developing countries increases our risk with respect to infrastructure available to support manufacturing, labor and employee relations, political and economic stability, natural disasters, corruption, and regulatory, environmental, health and safety compliance.
The continued operation and growth of our business will require substantial cash. Accordingly, we do not anticipate paying any cash dividends to holders of our common stock at any time in the foreseeable future.
We do not expect to declare any dividends in the foreseeable future. The continued operation and growth of our business will require substantial cash. Accordingly, we do not anticipate paying any cash dividends to holders of our common stock at any time in the foreseeable future.
In the ordinary course of business, we collect and store confidential information, including proprietary business information belonging to us, our customers, suppliers, business partners and other third parties and personally identifiable information of our associates.
In the ordinary course of business, we electronically collect, use and store confidential information, including proprietary business information belonging to us, our customers, suppliers, business partners and other third parties and personally identifiable information of our associates.
In addition, our sourcing costs may fluctuate due to labor conditions, transportation or freight costs, energy prices, currency fluctuations, public health crises, or other unpredictable factors. The occurrence of any of the foregoing could increase our costs, delay or reduce the availability of our products and negatively impact our gross margin.
In addition, our sourcing costs may fluctuate due to labor conditions, transportation or freight costs, energy prices, currency fluctuations, tariffs and trade restrictions, public health crises, or other unpredictable factors. The occurrence of any of the foregoing could increase our costs, delay or reduce the availability of our products and negatively impact our gross margin.
Failure to enhance our technology and marketing efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals. Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees.
Failure to enhance our technology and marketing 8 Table of Contents efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals. Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees.
If we experience damage to our 9 Table of Contents reputation or loss of consumer confidence, we may not be able to retain existing customers or acquire new customers, which could have a material adverse effect on our business, financial condition, operating results and prospects.
If we experience damage to our reputation or loss of consumer confidence, we may not be able to retain existing customers or acquire new customers, which could have a material adverse effect on our business, financial condition, operating results and prospects.
Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower than anticipated. If our growth rate declines as a result, investors’ perceptions of our business may be adversely affected, and the market price of our common stock could decline.
Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower 23 Table of Contents than anticipated. If our growth rate declines as a result, investors’ perceptions of our business may be adversely affected, and the market price of our common stock could decline.
Our inability to register 23 Table of Contents our trademarks or purchase or license the right to use the relevant trademarks or logos in these jurisdictions could limit our ability to manufacture our products in less costly markets or penetrate new markets in jurisdictions outside the United States. The occurrence of any of the foregoing could harm our business.
Our inability to register our trademarks or purchase or license the right to use the relevant trademarks or logos in these jurisdictions could limit our ability to manufacture our products in less costly markets or penetrate new markets in jurisdictions outside the United States. The occurrence of any of the foregoing could harm our business.
As such, any issue, or perceived issue, regarding the quality and safety of any items we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results. We are also subject to risks of fraud from our suppliers.
As such, any issue, or perceived issue, regarding the quality and safety of any items 13 Table of Contents we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results. We are also subject to risks of fraud from our suppliers.
If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers or reactivate prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses in order to acquire new customers. Our business is highly competitive.
If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers or reactivate prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses in order to acquire new customers. 10 Table of Contents Our business is highly competitive.
These carriers could be vulnerable to labor challenges, liquidity concerns, the impacts of global health conditions, or other factors that may result in delays in deliveries or increased costs of deliveries. Any significant delay in deliveries to its customers could cause increased order cancellations or returns and cause the Company to lose sales or incur increased costs.
These carriers could be vulnerable to labor challenges, liquidity concerns, the impacts of global health conditions, or other factors that may result in delays in deliveries or increased costs of deliveries. Any significant delay in deliveries to our customers could cause increased order cancellations or returns and cause us to lose sales or incur increased costs.
Any of these events could have a material adverse effect on our reputation, business, financial condition, operating results and prospects. Most of our products are shipped from our suppliers by ocean vessel.
Any of these events could have a material adverse effect on our reputation, business, financial condition, operating results and prospects. 14 Table of Contents Most of our products are shipped from our suppliers by ocean vessel.
The principal factors and uncertainties that make investing in our common stock risky include, among others: • our ability to sustain profitability, and raise capital; • our ability to accurately forecast our operating results and growth rate or manage our growth effectively; • our ability to maintain our brand image, engage new and existing customers and gain market share; 7 Table of Contents • our ability to compete successfully; • our ability to effectively market and launch our products and increase customer traffic; • our ability to attract, develop, motivate and maintain well-qualified associates; • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • any decline in consumer spending including due to negative impact from economic conditions; • our dependence on a small number of suppliers, including international suppliers and those in developing countries, foreign manufacturing and imports; • the impact of increases in demand for, or the price of, raw materials used to manufacture our products; • our inability to manage our inventory levels and products, including the complexities created by our omni-channel operations, and sustain our Internet sales levels; • our ability to successfully open and operate new showrooms and continue to achieve showroom growth rates that we have achieved in the past; • our ability to successfully adapt to consumer shopping preferences; • unfavorable changes to government regulation of the Internet and ecommerce; and • our ability to protect our trademarks, brand image, or other intellectual property rights.
The principal factors and uncertainties that make investing in our common stock risky include, among others: • our ability to sustain profitability, and raise capital; • our ability to accurately forecast our operating results and growth rate or manage our growth effectively; • our ability to maintain our brand image, engage new and existing customers and gain market share; • our ability to compete successfully; • our ability to effectively market and launch our products and increase customer traffic; • our ability to attract, develop, motivate and maintain well-qualified associates; 7 Table of Contents • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • our ability to maintain effective internal controls over financial reporting; • the impact related to the restatement of our previously issued financial statements; • any decline in consumer spending including due to negative impact from economic conditions; • our dependence on a small number of suppliers, including international suppliers and those in developing countries, foreign manufacturing and imports; • the impact of increases in demand for, or the price of, raw materials used to manufacture our products; • our inability to manage our inventory levels and products, including the complexities created by our omni-channel operations, and sustain our Internet sales levels; • our ability to successfully open and operate new showrooms and continue to achieve showroom growth rates that we have achieved in the past; • our ability to successfully adapt to consumer shopping preferences; • unfavorable changes to government regulation of the Internet and ecommerce; • failure to meet our publicly announced guidance; and • our ability to protect our trademarks, brand image, or other intellectual property rights.
Our ability to successfully open and operate new showrooms depends on many factors, including, among other things, our ability to: • identify new markets where our products and brand image will be accepted or the performance of our showrooms will be successful; 17 Table of Contents • find available and suitable showroom locations that align with our consumer location strategy; • obtain labor and materials required to construct our showrooms that can achieve capital payback requirements; • obtain desired locations, including showroom size and adjacencies, in targeted high traffic street and urban locations and top tier malls; • adapt our showrooms to address public health crises, such as the COVID-19 pandemic; • negotiate acceptable lease terms, including desired rent and tenant improvement allowances; • achieve brand awareness, affinity and purchaser intent in new markets; • hire, train and retain showroom associates and field management; • assimilate new showroom associates and field management into our corporate culture; • source and supply sufficient inventory levels; • employ the technologies needed to service a customer and complete a transaction; • successfully integrate new showrooms into our existing operations and information technology systems; and • have the capital necessary to fund new showrooms.
Our ability to successfully open and operate new showrooms depends on many factors, including, among other things, our ability to: • identify new markets where our products and brand image will be accepted or the performance of our showrooms will be successful; • find available and suitable showroom locations that align with our consumer location strategy; • obtain labor and materials required to construct our showrooms that can achieve capital payback requirements; • obtain desired locations, including showroom size and adjacencies, in targeted high traffic street and urban locations and top tier malls; • adapt our showrooms to address public health crises; • negotiate acceptable lease terms, including desired rent and tenant improvement allowances; • achieve brand awareness, affinity and purchaser intent in new markets; • manage capital expenditures while designing new showrooms and remodeling our existing showrooms; • hire, train and retain showroom associates and field management; • assimilate new showroom associates and field management into our corporate culture; • source and supply sufficient inventory levels; • employ the technologies needed to service a customer and complete a transaction; • successfully integrate new showrooms into our existing operations and information technology systems; and • have the capital necessary to fund new showrooms.
In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations. We may also be unable to enter into new leases on terms acceptable to us or in desirable locations.
In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations. We may 16 Table of Contents also be unable to enter into new leases on terms acceptable to us or in desirable locations.
We have been and may in the future be subject to security breaches caused by computer viruses, malware, ransomware, phishing attempts, social engineering, illegal break-ins or hacking, sabotage, acts of vandalism by disgruntled associates or third parties, and other means of unauthorized access.
We have been and may in the future be subject to security breaches caused by computer viruses and other malicious codes, malware, ransomware, phishing and other unauthorized access attempts, social engineering, denial-of-service attacks, illegal break-ins or hacking, sabotage, acts of vandalism by disgruntled associates or third parties, and other means of unauthorized access.
Our reputation could be jeopardized if we fail to maintain high standards for product quality and integrity and any negative publicity about these types of concerns may reduce demand for our products.
Our reputation could be jeopardized if we fail to maintain high standards for product quality and integrity and any negative publicity about these types of concerns, whether real or perceived, may reduce demand for our products.
Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities 26 Table of Contents actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
We previously identified in our Annual Report on Form 10-K for the year ended January 30, 2022 a material weakness in our internal control over financial reporting relating to ineffective information technology general controls.
Additionally, we previously identified in our Annual Report on Form 10-K for the year ended January 30, 2022 a material weakness in our internal control over financial reporting relating to ineffective information technology general controls, which has been remediated.
Concerns over the economic impact of rising inflation and interest rates, slower growth or recession, new or increased tariffs, decreased consumer confidence in the economy and armed hostilities, such as the ongoing conflict between Russia and Ukraine have caused extreme volatility in financial and capital markets, which has adversely impacted our stock price and may materially adversely affect our ability to access capital markets.
Concerns over the economic impact of rising inflation and interest rates, slower growth or recession, new or increased tariffs, decreased consumer confidence in the economy and armed hostilities, have caused extreme volatility in financial and capital markets, which has adversely impacted our stock price and may materially adversely affect our ability to access capital markets.
In addition, we have a 22 Table of Contents large remote workforce and have implemented security and other policies to govern this population of associates.
In addition, we have a large remote workforce and have implemented security and other policies to govern this population of associates.
We may not be able to maintain and enhance our brand if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations.
We may not be able to maintain 9 Table of Contents and enhance our brand if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations.
Sales at these showrooms are derived, in part, from the volume of foot traffic in these locations.
Sales at these 17 Table of Contents showrooms are derived, in part, from the volume of foot traffic in these locations.
Many of our current and potential competitors have longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technological capabilities, faster and less costly shipping, significantly greater financial, marketing 10 Table of Contents and other resources and larger customer bases than we do.
Many of our current and potential competitors have longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technological capabilities, faster and less costly shipping, more efficient distribution models, significantly greater financial, marketing and other resources and larger customer bases than we do.
We may not be able to develop products which are attractive to our customers, and our costs to develop new products may be significant. It may take longer than we might expect for a product, even if ultimately successful, to achieve attractive sales results.
We plan to continue to expand our product line in the future. We may not be able to develop products which are attractive to our customers, and our costs to develop new products may be significant. It may take longer than we might expect for a product, even if ultimately successful, to achieve attractive sales results.
Events that could cause disruptions to our supply chain include but are not limited to: • the imposition of additional trade laws or regulations; • public health crises, such as the COVID-19 pandemic; • the imposition of additional duties, tariffs and other charges on imports and exports; • foreign currency fluctuations; • theft; and • restrictions on the transfer of funds.
Events that have in the past and could in the future cause disruptions to our supply chain include but are not limited to, the imposition of additional trade laws or regulations; public health crises; the imposition of additional duties, tariffs and other charges on imports and exports; foreign currency fluctuations; theft; and restrictions on the transfer of funds.
In addition, as the regulatory environment relating to retailers and other companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines, other regulatory sanctions and lawsuits.
In addition, as the regulatory environment relating to retailers and other companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines, other regulatory sanctions and lawsuits. 12 Table of Contents A substantial portion of our business is dependent on a small number of suppliers.
Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions that: • permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships by the affirmative vote of a majority of the directors or stockholders holding at least 25% of our issued and outstanding shares of common stock; • provide that directors may only be removed by the majority of the shares of voting stock then outstanding entitled to vote generally in election of directors; • require a majority of all directors who constitute the board of directors or holders at least 25% of the issued and outstanding shares our common stock to adopt, amend or repeal provisions of our Amended and Restated Bylaws; • require 50% of the voting power of all then outstanding shares of our capital stock entitled to vote generally in election of directors to amend, alter or repeal, or adopt any provision inconsistent with certain sections of our Amended and Restated Certificate of Incorporation; • except as otherwise provided by the terms of any series of preferred stock, special meetings of our stockholders may be called only by the board of directors, the chairperson of the board of directors, the chief executive officer, the president (in the absence of a chief executive officer) or at least 25% of all then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class; and • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions that: • permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships by the affirmative vote of a majority of the directors or stockholders holding at least 25% of our issued and outstanding shares of common stock; • provide that directors may only be removed by the majority of the shares of voting stock then outstanding entitled to vote generally in election of directors; • require two-thirds of all directors who constitute the board of directors or holders at least a majority of the issued and outstanding shares our common stock to adopt, amend or repeal provisions of our Amended and Restated Bylaws; • require 50% of the voting power of all then outstanding shares of our capital stock entitled to vote generally in election of directors to amend, alter or repeal, or adopt any provision inconsistent with certain sections of our Amended and Restated Certificate of Incorporation; • except as otherwise provided by the terms of any series of preferred stock, special meetings of our stockholders may be called only by the board of directors, the chairperson of the board of directors, the chief executive officer, the president (in the absence of a chief executive officer) or at least 25% of all then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; • restrict the forum for certain litigation against us to Delaware These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.
Additionally, associates, contractors or consultants may misappropriate or disclose our confidential information or intellectual property and agreements with those persons may not exist, may not cover the information or intellectual property in question, or may not be enforceable, all of which could have an adverse impact on our business, financial condition, operating results and prospects for the future.
Additionally, associates, contractors or consultants may misappropriate or disclose our confidential information or intellectual property and agreements with those persons may not exist, may not cover the information or intellectual property in question, or may not be enforceable, all of which could have an adverse impact on our business, financial condition, operating results and prospects for the future. 25 Table of Contents The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources.
The asserted claims and/or litigation could include claims against us or our suppliers alleging infringement of intellectual property rights with respect to our products or components of such products. 25 Table of Contents Regardless of the merit of the claims, if our products are alleged to infringe or violate the intellectual property rights of other parties, we could incur substantial costs and we may have to, among other things: • obtain licenses to use such intellectual property rights, which may not be available on commercially reasonable terms, or at all; • redesign our products or change our marketing activities to avoid infringement or other violations of the intellectual property rights of others; • stop using the subject matter protected by the intellectual property held by others; • pay significant compensatory and/or enhanced damages, attorneys’ fees and costs; and/or • defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our time, financial and management resources.
Regardless of the merit of the claims, if our products are alleged to infringe or violate the intellectual property rights of other parties, we could incur substantial costs and we may have to, among other things: • obtain licenses to use such intellectual property rights, which may not be available on commercially reasonable terms, or at all; • redesign our products or change our marketing activities to avoid infringement or other violations of the intellectual property rights of others; • stop using the subject matter protected by the intellectual property held by others; • pay significant compensatory and/or enhanced damages, attorneys’ fees and costs; and/or • defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our time, financial and management resources. 27 Table of Contents If any of the foregoing occur, our business, financial condition, operating results and prospects could be materially adversely affected.
We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Mary Fox, our President and Chief Operating Officer, Jack Krause, our Chief Strategy Officer and a member of the Board of Directors, Donna Dellomo, our Executive Vice President, Chief Financial Officer, Treasurer and Secretary and other members of our management team.
We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Mary Fox, our President and Chief Operating Officer, Keith Siegner, our Executive Vice President and Chief Financial Officer, and other members of our management team.
A substantial portion of our business is dependent on a small number of suppliers. In some instances, our suppliers are the only source of supply, or one of a limited number of suppliers, used by the Company for materials, components or services.
In some instances, our suppliers are the only source of supply, or one of a limited number of suppliers, used by the Company for materials, components or services.
Dependence on our ecommerce business and the continued growth of our direct and retail channels subjects us to certain risks, including: 19 Table of Contents • the failure to successfully implement new systems, system enhancements and Internet platforms; • the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website downtimes, telecommunications issues or other technical failures; • the reliance on third-party computer hardware/software providers; • rapid technological change; • liability for online content; • violations of federal, state, foreign or other applicable laws, including those relating to data protection; • credit card fraud; • cyber security and vulnerability to electronic break-ins and other similar disruptions; and • diversion of traffic and sales from our stores.
Dependence on our ecommerce business and the continued growth of our direct and retail channels subjects us to certain risks, including: • the failure to successfully implement new systems, system enhancements and Internet platforms; • the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website downtimes, telecommunications issues or other technical failures; • the reliance on third-party computer hardware/software providers; • rapid technological change; • liability for online content; • violations of federal, state, foreign or other applicable laws, including those relating to data protection; • credit card fraud; • cyber security and vulnerability to electronic break-ins and other similar disruptions; and • diversion of traffic and sales from our stores. 20 Table of Contents Our failure to successfully address and respond to these risks and uncertainties could negatively impact sales, increase costs, diminish our growth prospects and damage the reputation of our brand, each of which could have a material adverse effect on our business, financial condition, operating results and prospects.
This assessment requires disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm also needs to attest to the effectiveness of our internal control over financial reporting. We designed, implemented, and tested internal control over financial reporting required to comply with this obligation.
This assessment requires disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm also needs to attest to the effectiveness of our internal control over financial reporting.
These events include but are not limited to: • equipment failure; • public health crises, such as the COVID-19 pandemic; • fires, floods, earthquakes, hurricanes, or other catastrophes; • unscheduled maintenance outages; • utility and transportation infrastructure disruptions; 12 Table of Contents • labor difficulties; • other operational problems; • war or terrorism; • political, social or economic instability; or • financial instability or bankruptcy of any such supplier.
These events include but are not limited to: • equipment failure; • public health crises, such as the COVID-19 pandemic; • fires, floods, earthquakes, hurricanes, or other natural disasters and climate-related events; • unscheduled maintenance outages; • utility and transportation infrastructure disruptions; • labor difficulties; • other operational problems; • war or terrorism; • political, social or economic instability, such as any conflict that may arise between China and Taiwan; or • financial instability or bankruptcy of any such supplier.
As of January 29, 2023, we had 195 showrooms, including 13 kiosks and 2 mobile concierges, but our growth strategy requires us to increase our showroom base. There can be no assurance that we will succeed in opening additional showrooms.
As of February 4, 2024, we had 230 showrooms, including 6 kiosks and 2 mobile concierges, but our growth strategy requires us to increase our showroom base. There can be no assurance that we will succeed in opening additional showrooms.
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and increase our operating costs.
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and increase our operating costs and we may be unable to pass through these costs to consumers.
The immediacy of social media precludes us from having real-time control over postings made regarding us via social media, whether matters of fact or opinion. Information distributed via social media could result in immediate unfavorable publicity 16 Table of Contents we may not be able to reverse.
As use of social media becomes more prevalent, our susceptibility to risks related to social media increases. The immediacy of social media precludes us from having real-time control over postings made regarding us via social media, whether matters of fact or opinion. Information distributed via social media could result in immediate unfavorable publicity we may not be able to reverse.
The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Notwithstanding such expenditures, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing, misappropriating or disclosing confidential information or intellectual property.
Notwithstanding such expenditures, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing, misappropriating or disclosing confidential information or intellectual property.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business.
While we continue to manage and evaluate our freight carriers, there is some indication that shipping container rates will return to lower levels in the near-term and these rate changes could have a material effect on our results of operations.
Streamlined ships were charging priority booking fees to allocate space as they had less ships and workers operating. While we continue to manage and evaluate our freight carriers, there is some indication that shipping container rates will return to lower levels in the near-term and these rate changes could have a material effect on our results of operations.
Existing and future regulations and laws could impede the growth of the Internet, ecommerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards.
Existing and future regulations and laws could impede the growth of the Internet, ecommerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, consumer credit offerings, content protection, electronic contracts and communications (such as “do not call/mail” and text messaging requirements), consumer protection, use of artificial intelligence, Internet neutrality and gift cards.
The occurrence of any of the foregoing could materially increase the cost and reduce or delay the supply of our products, which could adversely affect our business, financial condition, operating results and prospects. The ongoing COVID-19 pandemic, and any future outbreaks or other public health emergencies, could materially affect our business, liquidity, financial condition and operating results.
The occurrence of any of the foregoing could materially increase the cost and reduce or delay the supply of our products, which could adversely affect our business, financial condition, operating results and prospects.
We currently rely on a variety of third party service providers to support mission critical systems and the efficient flow of merchandise from and between warehouses and showrooms to customers.
We currently rely on a variety of third-party service providers to support mission critical systems and the efficient flow of merchandise from and between warehouses and showrooms to customers and we cannot be sure that these third-party systems, services and support will continue to be available to us without interruption.
If our suppliers violate our agreements, applicable laws or regulations, or implement fraudulent practices regarding their products, it could harm our business, reputation and brands and our operating results may be negatively affected.
If our suppliers violate our agreements, applicable laws or regulations, or implement fraudulent practices regarding their products, it could harm our business, reputation and brands and our operating results may be negatively affected. We are subject to risks associated with our dependence on foreign manufacturing, suppliers and imports for our products.
Accordingly, despite our security measures or those of our third-party service providers, a security breach may occur, including breaches that we may not be able to detect.
Our information technology network and systems have been and, we believe, continue to be under constant attack. Accordingly, despite our security measures or those of our third-party service providers, a security breach may occur, including breaches that we may not be able to detect.
While we strive to maintain multiple sources for our raw materials, the impact of COVID-19 and other macroeconomic conditions on raw materials and increased demand on our supply chain, could again cause additional pricing and availability pressures.
While we strive to maintain multiple sources for our raw materials, the impact of certain other macroeconomic conditions on raw materials and increased demand on our supply chain, could again cause additional pricing and availability pressures. Higher raw material prices and costs of sourced products could have an adverse effect on our future margins.
To the extent that we experience incremental costs in any of these areas, we may increase our selling prices or assess material surcharges to offset the impact. However, increases in selling prices, or surcharges, may not fully mitigate the impact of raw material cost increases which would adversely impact operating income.
To the extent that we experience incremental costs in any of these areas, we may increase our selling prices or assess material surcharges to offset the impact.
This unfavorable publicity could result in damage to our reputation and therefore have a material adverse effect on our business, financial condition, operating results and prospects. Our efforts to launch new products may not be successful. We plan to expand our product line in the future.
It is not possible to prevent such behavior, and the precautions we take to prevent or detect this activity may not be effective. This unfavorable publicity could result in damage to our reputation and therefore have a material adverse effect on our business, financial condition, operating results and prospects. Our efforts to launch new products may not be successful.
As we expand our showroom base, we may not be able to achieve the showroom sales growth rates that we have achieved in the past, which could cause our share price to decline. As we expand our showroom base, we may not be able to achieve the showroom sales growth rates that we have achieved historically.
Additionally, we may not be able to achieve the showroom sales growth rates that we have achieved historically as we continue to expand our showroom base.
Sacs, which represented approximately 8.5% of our revenues in fiscal 2023, 10.5% of our revenues in fiscal 2022, and 14.0% of our revenues in fiscal 2021, are currently manufactured by a single manufacturer in Texas, which has previously experienced, and may experience in the future, disruptions to its manufacturing operations.
Sacs, which represented approximately 7.4% of our revenues in fiscal 2024, 8.5% of our revenues in fiscal 2023, and 10.5% of our revenues in fiscal 2022, are currently manufactured by two manufacturers in Texas and North Carolina, which have previously experienced, and may continue to experience in the future, disruptions to its manufacturing operations.
Alternatively, if we underestimate demand for our products, we may experience inventory shortages resulting in delays in fulfilling customer demands and replenishing to appropriate inventory levels, missed sales and lost revenues. Continued or lengthy delays in fulfilling customer demand could cause our customers to shop with our competitors instead of us, which could harm our business.
Alternatively, if we underestimate demand for our products, we may experience inventory shortages resulting in delays in fulfilling customer demands and replenishing to appropriate inventory levels, missed sales and lost revenues.
Consequently, the only way our shareholders may be able to realize future gain on their investment is to sell their shares of common stock after the price of such shares has appreciated. However, there is no guarantee that our shares of common stock will appreciate in value. Item 1B. Unresolved Staff Comments. None.
Consequently, the only way our shareholders may be able to realize future gain on their investment is to sell their shares of common stock after the price of such shares has appreciated.
Our inability to raise capital when needed could prevent us from growing and have a material adverse effect on our business, financial condition, operating results and prospects.
Our inability to raise capital when needed could prevent us from growing and have a material adverse effect on our business, financial condition, operating results and prospects. We previously identified material weaknesses in our internal control over financial reporting that resulted in a restatement of our financial statements.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder. 27 Table of Contents We do not expect to declare any dividends in the foreseeable future.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law ("DGCL"), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.] 29 Table of Contents Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Climate change related events, including increased frequency or severity of natural disasters and other extreme weather conditions (including rising temperatures and drought) and their impact on critical infrastructure, could pose risks to our supplier facilities, impair our production capabilities, and disrupt our supply chain.
Climate change related events, including increased frequency or severity of natural disasters and other extreme weather conditions (including fluctuations in temperatures, water availability, floods, wildfires and resultant air quality impacts, other unusual or prolonged adverse weather patterns and power shutoffs associated with these events) and their impact on critical infrastructure, could pose risks to our supplier facilities, impair our production capabilities, and disrupt our supply chain.
If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Although these weaknesses have been remediated, if we experience additional material weaknesses or other deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
If we experience a disruption in our information technology systems, it could result in the loss of sales and customers and significant incremental costs, which could materially adversely affect our business.
If we experience a disruption in our information technology systems, whether due to human error or misconduct, system errors or vulnerabilities in our or our third party service providers' products, systems or solutions, it could result in the loss of sales and customers and significant incremental costs, which could materially adversely affect our business.
The occurrence of any of the foregoing could substantially harm our business and results of operations. 11 Table of Contents Unauthorized disclosure of sensitive or confidential information, whether through a breach of our computer system or otherwise, could severely hurt our business.
Unauthorized disclosure of sensitive or confidential information, whether through a breach of our computer system or otherwise, could severely hurt our business.
In addition, due to the global COVID-19 pandemic, ocean freight capacity issues could continue to persist worldwide as there could be much greater demand for shipping and reduced capacity and equipment, which could result in pandemic price increases per shipping container. Streamlined ships were charging priority booking fees to allocate space as they had less ships and workers operating.
In addition, ocean freight capacity issues increased during the COVID-19 pandemic and could continue to persist worldwide. If this were to occur, there could be much greater demand for shipping and reduced capacity and equipment, which could result in pandemic price increases per shipping container.
Furthermore, we may have to incur significantly higher and more sustained advertising and promotional expenditures in order to attract additional online consumers to our sites and convert them into purchasing customers online. Our increased use of social media poses reputational risks. As use of social media becomes more prevalent, our susceptibility to risks related to social media increases.
Furthermore, we may have to incur significantly higher and more sustained advertising and promotional expenditures in order to attract additional online consumers to our sites and convert them into purchasing customers online. We market our products globally through a range of advertising and promotional programs and campaigns, including social media.
We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. 20 Table of Contents As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance.
We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply.
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Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
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2023 filing
2024 filing
We also lease retail space for our showrooms, in 195 locations throughout the majority of the U.S. states including Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and the District of Columbia.
We also lease retail space for our showrooms, in 230 locations throughout the majority of the U.S. states including Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and the District of Columbia.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
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Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
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2023 filing
2024 filing
Commitments, Contingencies and Related Parties to our financial statements within Part IV of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 28 Table of Contents PART II.
Item 3. Legal Proceedings. See Note 7. Commitments, Contingencies and Related Parties to our financial statements within Part IV of this Annual Report on Form 10-K for a description of our legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. 32 Table of Contents PART II.
Removed
Item 3. Legal Proceedings. We are currently involved in, and may in the future be involved in, legal proceedings, claims, and investigations in the ordinary course of our business, including claims for infringing intellectual property rights related to our products.
Removed
Although the results of these proceedings, claims, and investigations cannot be predicted with certainty, we do not believe that the final outcome of these matters is reasonably likely to have a material adverse effect on our business, financial condition, or results of operations.
Removed
Regardless of final outcomes, however, any such proceedings, claims, and investigations may nonetheless impose a significant burden on management and associates and may come with costly defense costs or unfavorable preliminary and interim rulings. For additional information regarding legal proceedings, refer to Note 8.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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2023 filing
2024 filing
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on Nasdaq under the symbol “LOVE.” Holders As of March 15, 2023, there were 170 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on Nasdaq under the symbol “LOVE.” Holders As of April 8, 2024, there were 148 holders of record of our common stock.
Lovesac Stock Performance Graph The following graph compares the cumulative total stockholder return on our common stock (assuming reinvestment of dividends) with the cumulative total return on the S&P 500 and the Russell 2000 from February 1, 2019 through January 29, 2023.
The following graph compares the cumulative total stockholder return on our common stock (assuming reinvestment of dividends) with the cumulative total return on the S&P 500 and the Russell 2000 from February 1, 2019 through February 4, 2024.
The graph assumes a $100 investment in each of our common stock, the S&P 500 and the Russell 2000 on February 1, 2019. 29 Table of Contents February 1, 2019 February 2, 2020 January 31, 2021 January 30, 2022 January 29, 2023 The Lovesac Company common stock $100.00 $47.81 $238.16 $212.89 $109.39 S&P 500 $100.00 $121.56 $142.53 $172.46 $134.04 Russell 2000 $100.00 $109.02 $141.91 $136.05 $161.03 Item 6. [Reserved] Not applicable.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Common Stock. 33 Table of Contents February 1, 2019 February 2, 2020 January 31, 2021 January 30, 2022 January 29, 2023 February 4, 2024 The Lovesac Company common stock 100.00 47.81 238.16 212.89 109.39 96.97 Russell 2000 100.00 109.02 141.91 136.05 134.01 139.82 S&P 500 100.00 121.56 142.53 172.46 161.03 199.42 Item 6. [Reserved] Not applicable.
Added
Lovesac Stock Performance Graph The graph below shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our other filings under the Securities Act or the Exchange Act.
Added
The graph assumes a $100 investment in each of our common stock, the S&P 500 and the Russell 2000 on February 1, 2019.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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2023 filing
2024 filing
Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period.
Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ended February 4, 2024 consisted of 53 weeks. Fiscal year 2023 and 2022 each consisted of 52 weeks.
We market and sell our products through an omni-channel platform that includes direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, and online directly at www.lovesac.com.
We market and sell our products through an omni-channel platform that includes direct-to-consumer touch points in the form of our own showrooms, which include our mobile concierge and kiosks, and online directly at www.lovesac.com. We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered products through express couriers, is unique to the furniture industry.
Removed
We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered products through express couriers, is unique to the furniture industry. Our Operations See
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
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2023 filing
2024 filing
Inflation In fiscal year 2023, we saw inflationary pressures across various parts of our business and operations, including, but not limited to, wholesale cost inflation and rising costs across our supply chain. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions.
Inflation In fiscal 2024, we saw inflationary pressures across various parts of our business and operations, including, but not limited to, wholesale cost inflation and rising costs across our supply chain. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions.
The Company’s financial statements are contained in the pages beginning on F-1, which appear at the end of this Annual Report on Form 10-K. 38 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
The Company’s financial statements are contained in the pages beginning on F-1, which appear at the end of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.